Under new measures designed to increase market confidence in the shaky financial system in Spain, the Government proposes to take a stake in any banks or savings banks that violate new capital requirements.
The savings banks, cajas, are seen as being particularly vulnerable in Spain. The core capital requirement is being raised from 6% to 8%, and savings banks have until September to attract private investment to avoid state intervention.
Any savings banks requiring assistance from the FROB (Fund for Orderly Restructuring of Banks) will find themselves converted into banks and will, as a result, lose their special legal status.
Any state intervention will be temporary and limited to a period of five years, during which time the entity will be forced to make a major restructuring of its executive. In addition, these entities, most likely the savings banks, will have to present a feasibility plan that provides for private investment to replace the FROB.
In September, the Bank of Spain will provide a report of entities unable to attract private investment and who are therefore unable to meet the new capital requirements. This will give the green light for intervention by the state.